Review

• Wilmar's 1QFY24 results came in broadly in line within expectations. Note that 1Q is usually the weakest quarter for Wilmar. Excluding exceptional items, the core net profit decreased by 14.0% YoY to USD328.4mn, accounting for 18% and 19% of our and consensus' full-year estimate. 1QFY24 revenue dropped by 7.3% YoY to USD15.7bn mainly due to lower commodity prices compared to previous year.

• The total volume of Food Products increased by 13.9% YoY to 8.2mn tonnes in 1QFY24. Medium-pack and bulk products, along with consumer products, recorded higher sales volume growth rates of 17.7% and 6.0%, respectively. Management attributed the increase in profits for the Food Products segment in 1QFY24 to the decline in commodity prices, which led to lower raw material costs.

• The Feed and Industrial Products segment registered better sales volume of 14.6mn tonnes (+7.0% YoY). However, profits for the segment were dampened by weaker performance from the sugar merchandising division, while the tropical oils and crushing businesses remained challenging.

• The share of profits from JVs and associates was also declined in 1QFY24, primarily attributable to its investments in China.

Impact

• No change to our earnings forecasts.

Outlook

• Overall, management is cautiously optimistic about the outlook in FY24, despite anticipating that challenging conditions will persist into FY24.

• Demand for food products is projected to recover, especially in China, fuelled by improving consumer sentiment and spending in 2024.

• For the Feed and Industrial Products segment, sugar milling margins will be affected by lower sugar prices due to improving supply outlook, in our view. Meanwhile, the operating conditions in China are expected to remain challenging due to soft soybean demand as hog margins remain depressed.

Valuation

• Our SOP valuation for Wilmar is revised upward to SGD4.04/share from SGD4.00/share as we roll forward our SOP valuation to CY25. Maintain BUY.

Source: TA Research - 30 Apr 2024